Month: November 2015

Markets will try to bounce back from last week’s selling following a slide in retail and technology shares. Investors should also stay attuned to potential political and economic impact in the wake of terror attacks in Paris, though there was little discernable impact on the market in early Monday trading. The euro fell in proportion to last week’s declining trend. Oil prices rebounded on Monday after eight consecutive days of losses. Heightened security efforts and border restrictions in Europe may temporarily slow the economy. Any damage to the economy is likely to reinforce the European Central Bank’s resolve to step in with additional monetary easing, if required, and the ECB was considering easing in December prior to the attacks.

Japan’s economy dipped into recession in the third quarter. It is the second consecutive quarterly contraction for the nation. The shrinking economy is reflective of Japan’s falling population, which has been in decline since it peaked a decade ago. The more important number for Japan is nominal GDP, which increased 0.1 percent, but that growth isn’t nearly fast enough. With government debt rising more rapidly than GDP, the country’s fiscal position continues to weaken. A weaker currency may be the only way to generate the inflation and nominal growth needed to improve the country’s fiscal position.

The Consumer Price Index (CPI) report on Tuesday is expected to show a 0.2 percent increase. Inflation is a key gauge used by the Fed and one of the last remaining major data points for deciding its next move. Investors will gain more insight when the Fed releases the minutes of its October meeting on Wednesday. Odds of a December rate hike came into the week at 70 percent. If data is positive and Fed minutes show officials leaning towards raising rates, this week could end with the odds of a rate hike approaching certainty.

Wednesday’s housing starts for October will provide data on the health of the housing industry. A small decline is expected from the previous month. In addition to weekly unemployment claims report on Thursday, Empire State, Philly Fed and Kansas City Fed manufacturing surveys reports this week will provide a snapshot of the economy’s strength.

With earnings season about 90 percent over, only the retail sector remains as a major reporting sector. Potential market movers announcing earnings this week include Wal-Mart (WMT), Target (TGT) and Best Buy (BBY). Down 33.7 percent year-to-date, Wal-Mart started the retail slide when it warned on earnings last month. The retail behemoth is expected to report earnings of $0.98 a share. Bucking the trend, Target is trading near its 52-week high; it’s expected to report earnings of $0.86 per share. Best Buy’s earnings should also provide additional information on the health of the consumer and the outlook for holiday sales. Other big names reporting this week include Salesforce.com (CRM) and Staples (SPLS) as well as home improvement giants Home Depot (HD) and Lowe’s (LOW). The latter two are top holdings in most housing and home construction funds.

After six weeks of gains, broad selling pressure marked a corrective week and dropped the S&P 500 Index back into the red for 2015 (excluding dividends). The S&P 500 dropped 1 percent on Monday, influenced by poor economic news out of China. Credit and commodities were also hurt, while gold reached lows last seen in 2010. For the week, the S&P 500 Index fell 3.63 percent, while the Nasdaq slid 4.26 percent. The Dow Jones Industrial Average declined 3.71 percent and the Russell 2000 fell 4.43 percent.

Crude oil ebbed for eight consecutive days through Friday, losing about 15 percent in the process. An unexpected surplus and increased production put pressure on oil. Additionally, a backlog of oil tankers off the coast of Texas has the bears pressing for lower prices. Copper fell to a new multi-year low. Other industrial commodities such as steel, coal, iron ore and aluminum are under similar pressure due to weakness in China.

In earnings news, Cisco (CSCO) posted quarterly results that beat estimates, but the computer-networking giant issued weak guidance, sending the stock lower in Friday trading. Retail shares were also down after Macy’s (M), Nordstrom (JWN) and Advance Auto Parts (AAP) disappointed investors with a series of earnings reports and weak guidance. All three stocks fell nearly 20 percent on the week, while J.C. Penney (JCP) was down about 15 percent. By Friday, the entire sector was under pressure. Even companies that had previously beat earnings, such as Kohl’s (KSS), were trading down.  October’s lackluster earnings and weaker-than-expected retail sales reports provided the impetus for Friday’s move; sales only increased 0.1 percent, well short of economists’ projected 0.3.  The retail report doesn’t fully explain the selling on Friday, but the retail sector’s gloomy overall mood is sparing few companies. Even Amazon (AMZN), which had been solid recently, was virtually flat on the week.

Although retail sales disappointed, the Atlanta Federal Reserve kept its economic growth forecast to 2.3 percent for the 4^th current quarter. Inventory data for September, released early in the week, will push the third quarter GDP estimate higher. Odds of a December rate hike held firm at 70 percent during the week, signaling a neutral position among speculators.

The euro and yen were dragged lower versus the U.S. dollar after comments from Fed Chair Janet Yellen and Regional Presidents William Dudley, Charles Evans and Jeffrey Lacker indicated that a rate hike would occur at the December meeting. Mario Draghi, head of the European Central Bank, reiterated that the central bank would engage in quantitative easing if downside risks were to intensify. The People’s Bank of China weakened the yuan on Friday and traders pushed it even lower in Hong Kong after weak credit growth in October degraded the government’s efforts to stimulate the economy.

An International Monetary Fund (IMF) statement forecast of protracted sub-par growth for the global economy helped to strengthen the dollar, as well. The IMF believes the three biggest risks going forward, especially in emerging markets, are a hike in U.S interest rates, low commodity prices and the slowdown in China.